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Telecom has staked the future of its struggling Australian subsidiary AAPT on a wholesale access agreement with network company PowerTel, which it says will let it cut costs and provide more high-speed services.
The agreement with PowerTel will see AAPT scale back and probably eventually dispense with its
own network in Australia and rely more on PowerTel.
"They focus on what they're good at and we focus on what we're good at," said Telecom chief financial officer Marko Bogoievski. "There's no point in being half in and half out."
The agreement - to resell PowerTel services including superfast broadband ADSL2+ - would save AAPT A$15 million to A$20 million this year and eventually up to A$90 million a year.
"The proposed alliance would reinforce the capabilities of each entity and enable AAPT and PowerTel to continue to invest in services and network capability respectively."
Bogoievski said AAPT had been able to negotiate favourable terms with PowerTel "because they're not in the retail business".
"When we were talking to Optus about the same sorts of arrangement, the obvious underlying issue is always that they have a big retail business and so they're basically careful about their wholesale arrangements," he said.
His comments came as Telecom disclosed AAPT made a first quarter loss of A$8 million, down from A$12 million in the same quarter last year.
Telecom bought AAPT in 1999 for $2.2 billion but, after a series of writedowns, values it at just $270 million. AAPT was put up for sale earlier this year but, after failing to find a buyer, Telecom said three months ago it would hold on to the unit.
Telecom chief executive Theresa Gattung said yesterday retaining AAPT was important to the local business market because such customers wanted a host of telecommunications services on the other side of the Tasman, which AAPT could provide.
ABN Amro telecommunications analyst Ian Martin said the deal looked positive for AAPT and would allow it to earn a better margin in Australia.
It continued the recent consolidation of the smaller telcos in Australia and Martin said he would expect to see AAPT take a stake in PowerTel in the future.
"I think that's a logical extension along the track," he said. "I would guess there's a period in which they have a look at how the operation unfolds and work out who's contributing what to it before they can work out how that benefit should be shared in an equity agreement."
Bogoievski said AAPT was moving towards online billing and customer service, which would also save money.
"It's a totally online service and distribution model, a low-cost model, that we think gives future customers what they are really looking for.
"Not everyone wants that sort of service, so we're not pretending it's immediately relevant to everybody."
AAPT also said it had renegotiated its wholesale agreement with Telstra but Bogoievski was not so effusive about the terms. "We get discounts that are quite modest, notwithstanding the fact that we spend half a billion dollars with them," he said.